Minsky in Beijing: shadow banking, credit expansion and debt accumulation in China

Introduction Since the Global Financial Crisis that erupted in 2008, China has undergone two salient developments in its financial landscape.1 First, there has been a rapid and massive growth of the “shadow banking” sector that has played an increasingly weighty role in credit creation. And second, debt level, especially in the corporate sector, has risen significantly to reach an alarming level. The two changes have led some commentators to claim that China was soon to experience a “Minsky Moment”, where a sudden unwinding of debt would trigger destructive debt deflation.